Structured Products

NPKAPITALFORVALTING | 26 Sep 2015

Structured products are an overall name for investments that contain bonds in combination with options.

Placements can be customized and are a natural feature of a professional portfolio with a combination of mutual funds and corporate bonds. With structured products you can invest in markets that are generally difficult to invest in directly via stocks and mutual funds. This allows a structured product to complement the overall portfolio. The most common structured products are capital protected investments, index certificates and auto calls.

Capital protected products - A placement may be directed towards many different markets and the invested amount (principal amount) is guaranteed on the final day by the issuer. Normally the term is 3-5 years. This placement is suitable for those who want to invest in a specific market without any significant risk.

Index certificates - An index certificate follows a certain index or underlying market to a certain predetermined level of participation. If the participation rate is 150 percent and the underlying index has risen by 50 percent after maturity, investments will provide 150 percent of 50 percent, meaning a total of 75 percent. An index certificate normally has a ground risk protection, typically at minus 50 percent. This means that if the underlying index or market has fallen by less than 50 percent after the term's end, the customer gets back the total invested amount (nominal amount). If underlying indexes or markets fall more than 50 percent, negative developments will be deducted from the invested capital (nominal amount) before payment of return. This means that the investment will fall in sync with the underlying index or market.

Auto Call - An Auto Call is a form of index certificate, but this investment may in many cases provide a return in a stagnant market, and even to some extent during negative market development. An auto call works well as a building block in the overall portfolio, and works very well when it comes to spreading the risk in the total portfolio.